Legal barriers to deep decarbonization through nationalizationand options to overcome them
Dr Kyla Tienhaara
Canada Research Chair in Economy and Environment Queen's University
THE CLIMATE CRISIS
"If damaging tipping cascades can occur and a global tipping point cannot be ruled out, then this is an existential threat to civilization. No amount of economic cost–benefit analysis is going to help us.
We need to change our approach to the climate problem."
Lenton et al. "Climate tipping points — too risky to bet against" Nature 575, 592-595 (2019)
THE PRODUCTION GAP & CARBON BUBBLE
“Every oil major is betting heavily against a 1.5C world and investing in projects that are contrary to the Paris goals.”
Andrew Grant, Carbon Tracker
The Legality of Nationalization under International Investment Law
Potential Defences Against Payment of Full Compensation
The Case for Nationalization
NATIONALIZATION OF ENERGY ASSETS
The Energy Grid/Utilites
Fossil Fuel Companies
NATIONALIZATION FOR DECARBONIZATION
Neuter the power of the industry
Keep unburnable carbon in the ground
Ensure a Just Transition for workers
"To be clear, nationalization by itself is not a panacea — there are, after all, plenty of state-owned fossil fuel companies that are just as good at ignoring the climate crisis as privately-owned ones...
What we are proposing is...a program of nationalization and rapid decommission, designed to keep unextractable carbon permanently in the ground while creating the planning space needed for a just transition for affected workers."
- Carla Santos Skandier Next System Project
(Image source: TNI)
International Investment Law
3000+ Bilateral Investment Treaties and Treaties with Investment Provisions(image source: mappinginvestmenttreaties.com)
"The ECT would apply to a third of the UK’s energy network companies...The treaty would also apply to four of the big six energy suppliers...British companies that are not covered by the ECT have already set up offshore holdings to take advantage of similar bilateral agreements with tax havens such as Hong Kong, Luxembourg, Switzerland and Singapore."
NATIONALIZATION UNDER IIAS
payment of compensation
Compensation shall be equivalent to the fair market value of the expropriated investment immediately before the expropriation took place ("date of expropriation"), and shall not reflect any change in value occurring because the intended expropriation had become known earlier. Valuation criteria shall include going concern value, asset value including declared tax value of tangible property, and other criteria, as appropriate, to determine fair market value.
NAFTA Article 1110.2
PROBLEMS WITH DETERMINING FAIR MARKET VALUE
Valuation methods are problematic even in straight-forward scenarios ('junk science')
Fossil fuel assets are mispriced
How are liabilites taken into consideration?
(Source: Carbon Tracker)
ARGUMENTS AGAINST FULL COMPENSATION
massive public subsidies
CLIMATE EMERGENCY = NECESSITY
The term “necessity” ... is used to denote those exceptional cases where the only way a State can safeguard an essential interest threatened by a grave and imminent peril is, for the time being, not to perform some other international obligation of lesser weight or urgency. Under conditions narrowly defined in article 25, such a plea is recognized as a circumstance precluding wrongfulness.
Article 25 of the ILC Articles on State Responsibility
NECESSITY & COMPENSATION
state-of-necessity defense was not designed to excuse the non-payment of compensation for the expropriation, nor could it, since the invocation of this defense does not preclude the payment of compensation by the State for the damages effectively resulting from acts attributable to it.
South American Silver v Bolivia
The principle of contributory negligence (also known as contributory fault) has been applied by investment tribunals to reduce the amount of damages awarded to a claimant, where the claimant’s own conduct contributed to the loss suffered.